Architecture advocate blasts tax increase on S corps

"As architects begin to recover from the Great Recession, now is the worst time to raise taxes on a sector of the economy that is a catalysts for job growth in the design and construction industry," said Paul Mendelsohn, AIA's vice president of government and community relations. "Only this week, the AIA reported that architectural billings increased for the third consecutive month, an indication that new construction could be on the rise in 9 to 12 months. Since many of our members work for firms with 3 or fewer employees, this [tax increase] could force architects to lay off staff or stop hiring new staff to pay for the new tax -- even though this provision is in a 'jobs' bill."

Since the economic crisis began, architectural firms have suffered heavy losses and have made drastic cuts in staffing. Even the health care sector of the industry, which is normally counter cyclical to the current economic climate, was forced to reduce staff because projects either fell through or never got off the ground.

The American Jobs and Closing Tax Loopholes Act of 2010, which extends several measures and is being reviewed by lawmakers, seeks to raise approximately $10 billion by requiring S corporation owners to pay employee taxes on profits from the company that aren't considered salary.

Mendelsohn argues that taxing the profits will hurt investment activity.

"Although the stated intention of the provision would be to collect taxes from individuals who form as S corporations to avoid paying payroll taxes, it would invariably entrap legitimate S corporations who follow the letter and spirit of the law," he said.

The House is expected to vote on the bill early next week, with the Senate following close behind. Democratic leaders seek to complete work on it by the Memorial Day recess.